ALANCO TECHNOLOGIES, INC.


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB


         X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
       ----
                              EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 2005

           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
       ----
          For the transition period from          to
                                        ---------   ---------
                          Commission file number 0-9347

                            ALANCO TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)

                                     Arizona
         (State or other jurisdiction of incorporation or organization)

                                   86-0220694
                      (I.R.S. Employer Identification No.)

              15575 N. 83rd Way, Suite 3, Scottsdale, Arizona 85260
               (Address of principal executive offices) (Zip Code)

                  (480) 607-1010 (Issuer's telephone number)

                 ----------------------------------------------
                 (Former name, former address and former fiscal
                      year, if changed since last report)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

      As of February 8, 2006 there were 30,395,200 shares, net of treasury
                    shares, of common stock outstanding.

   Transitional Small Business Disclosure Format (Check one): Yes    No X
                                                                 ---   ---

Forward-Looking Statements: Some of the statements in this Form 10-QSB Quarterly
Report, as well as statements by the Company in periodic press releases, oral
statements made by the Company's officials to analysts and shareholders in the
course of presentations about the Company, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Words or phrases denoting the anticipated results of future events such
as "anticipate," "believe," "estimate," "will likely," "are expected to," "will
continue," "project," "trends" and similar expressions that denote uncertainty
are intended to identify such forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) changes
in industries in which the Company does business; (iii) the loss of market share
and increased competition in certain markets; (iv) governmental regulation
including environmental laws; and (v) other factors over which the company has
little or no control.

                                       1
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

<TABLE>
<CAPTION>

                                      INDEX

                                                                   Page Number

PART I.  FINANCIAL INFORMATION
         <S>      <C>                                                      <C>
         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets
                            December 31, 2005 (Unaudited)
                            and June 30, 2005...............................3

                  Condensed Consolidated Statements of Operations
                            (Unaudited)for the three months ended
                            December 31, 2005 and 2004......................4

                  Condensed Consolidated Statements of Operations
                            (Unaudited for the six months ended
                            December 31, 2005 and 2004......................5

                  Condensed Consolidated Statements of Changes in Equity
                            (Unaudited)for the six months ended
                            December 31, 2005 and 2004......................6

                  Condensed Consolidated Statements of Cash Flows
                            (Unaudited)for the six months ended
                            December 31, 2005 and 2004.....................7

         Notes to Condensed Consolidated Financial Statements
                  (Unaudited)...............................................9
                  Note A - Basis of Presentation and Recent Accounting
                           Pronouncements
                  Note B - Inventories
                  Note C - Contracts in Process
                  Note D - Deferred Revenue
                  Note E - Loss per Share
                  Note F - Equity
                  Note G - Industry Segment Data
                  Note H - Related Party Transactions
                  Note I - Line of Credit
                  Note J - Litigation
                  Note K - Subsequent Events

         Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations......................14

         Item 3.  Controls and Procedures..................................19

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings........................................19

         Item 2.  Unregistered Sale of Equity Securities and Use
                  of Proceeds..............................................19

         Item 4.  Submission of Matters to a Vote of Security Holders......19

         Item 6.  Exhibits ................................................20
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF DECEMBER 31, 2005 AND JUNE 30, 2005

                                                     Dec 31, 2005  June 30, 2005
                                                     ------------  -------------
<S>                                                  <C>           <C>
ASSETS                                                (unaudited)
CURRENT ASSETS
   Cash and cash equivalents                         $    129,900  $    737,300
   Accounts receivable, net                               769,400     1,091,400
   Notes receivable, current                               29,600        80,000
   Inventories, net                                     2,267,300     1,902,600
   Prepaid expenses and other current assets              495,900       378,200
                                                     ------------  ------------
      Total current assets                              3,692,100     4,189,500
                                                     ------------  ------------

PROPERTY, PLANT AND EQUIPMENT, NET                        231,400       273,500
                                                     ------------  ------------

OTHER ASSETS
   Goodwill , net                                       5,356,300     5,356,300
   Other intangible assets                                450,000       560,700
   Long-term notes receivable, net                          5,000         8,000
   Net assets held for sale                                65,200       100,200
   Other assets                                            50,200        55,700
                                                     ------------  ------------
      Total other assets                                5,926,700     6,080,900
                                                     ------------  ------------
TOTAL ASSETS                                         $  9,850,200  $ 10,543,900
                                                     ============  ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable and accrued expenses             $  1,260,100  $  1,279,600
   Billings in excess of cost and est earnings
      on uncompleted contracts                              3,000         4,200
   Deferred revenue, current                               94,700        60,100
                                                     ------------  ------------
      Total Current Liabilities                         1,357,800     1,343,900

LONG TERM LIABILITIES
   Notes payable, long term                             1,314,100     1,143,600
                                                     ------------  ------------
TOTAL LIABILITIES                                       2,671,900     2,487,500
                                                     ------------  ------------
   Preferred Stock - Series B, 71,400 and 68,000
      shares issued and outstanding, respectively         701,500       667,300
                                                     ------------  ------------

SHAREHOLDERS' EQUITY
   Preferred Stock - Series A Convertible, 2,947,100
      and 2,781,200 shares issued and outstanding,
      respectively                                      3,661,500     3,412,700
   Common Stock- 28,895,200 and 26,680,200 shares
      outstanding, net of 500,000 shares of
      Treasury Stock                                   72,942,600    71,714,600
   Treasury Stock, at cost                               (375,100)     (375,100)
   Accumulated deficit                                (69,752,200)  (67,363,100)
                                                     ------------  ------------
      Total shareholders' equity                        6,476,800     7,389,100
                                                     ------------  ------------

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY             $  9,850,200  $ 10,543,900
                                                     ============  ============
</TABLE>
      See accompanying notes to the consolidated financial statements

                                       3
<PAGE>

<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED DECEMBER 31, (Unaudited)

                                                         2005          2004
                                                     ------------  ------------
<S>                                                  <C>           <C>
NET SALES                                            $  1,624,900  $  2,085,500

   Cost of goods sold                                   1,113,800     1,402,400
                                                     ------------  ------------

GROSS PROFIT                                              511,100       683,100

   Selling, general and administrative expense          1,539,400     1,548,900
                                                     ------------  ------------

OPERATING LOSS                                         (1,028,300)     (865,800)

OTHER INCOME & EXPENSES
   Interest expense, net                                  (21,700)      (11,200)
   Other income, net                                        8,200         5,800
                                                     ------------  ------------
LOSS FROM OPERATIONS                                   (1,041,800)     (871,200)

   Preferred stock dividends - paid in kind               (17,300)      (15,000)
                                                     ------------  ------------

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS         $ (1,059,100) $   (886,200)
                                                     ============  ============

NET LOSS PER SHARE - BASIC AND DILUTED
   - Net loss attributable to common shareholders    $      (0.04) $      (0.03)
                                                     ============  ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             28,269,300    25,416,700
                                                     ============  ============
</TABLE>

         See accompanying notes to the consolidated financial statements


                                    4
<PAGE>
<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE SIX MONTHS ENDED DECEMBER 31, (Unaudited)

                                                         2005          2004
                                                     ------------  ------------
<S>                                                  <C>           <C>
NET SALES                                            $  3,226,500  $  3,822,700

   Cost of goods sold                                   2,170,500     2,518,200
                                                     ------------  ------------

GROSS PROFIT                                            1,056,000     1,304,500

   Selling, general and administrative expense          3,136,600     3,067,600
                                                     ------------  ------------

OPERATING LOSS                                         (2,080,600)   (1,763,100)

OTHER INCOME & EXPENSES
   Interest expense, net                                  (42,200)      (27,600)
   Other income, net                                       16,800        10,800
                                                     ------------  ------------
LOSS FROM OPERATIONS                                   (2,106,000)   (1,779,900)

   Preferred stock dividends - paid in kind              (283,100)     (251,700)
                                                     ------------  ------------

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS         $ (2,389,100) $ (2,031,600)
                                                     ============  ============

NET LOSS PER SHARE - BASIC AND DILUTED
   - Net loss attributable to common shareholders    $      (0.09) $      (0.08)
                                                     ============  ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             27,486,000    24,887,000
                                                     ============  ============
</TABLE>

         See accompanying notes to the consolidated financial statements

                                       5
<PAGE>

<TABLE>
<CAPTION>

                                                  ALANCO TECHNOLOGIES, INC.
                             CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                  FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (unaudited)

                                                          SERIES A
                                  COMMON STOCK         PREFERRED STOCK      TREASURY STOCK    ACCUMULATED
                               SHARES      AMOUNT      SHARES    AMOUNT     SHARES   AMOUNT     DEFICIT        TOTAL
                             ---------------------- ---------------------  -----------------  ------------  -----------
<S>                          <C>        <C>          <C>       <C>         <C>     <C>        <C>           <C>

Balances, June 30, 2005      27,180,200 $71,714,600  2,781,200 $3,412,700  500,000 $(375,100) $(67,363,100) $ 7,389,100

  Exercise of options           140,000      53,600       -          -        -         -             -          53,600
  Exercise of warrants        1,850,000   1,135,000       -          -        -         -             -       1,135,000
  Shares issued for prepaid
    services                    225,000     135,100       -          -        -         -             -         135,100
  Quarterly stock valuation        -        (80,700)      -          -        -         -             -         (80,700)
  Preferred dividends,
    paid in kind                   -           -       165,900    248,800     -         -             -         248,800
  Nasdaq Fees                      -        (15,000)      -          -        -         -             -         (15,000)
  Net loss                         -           -          -          -        -         -       (2,389,100)  (2,389,100)
                             ---------- -----------  --------- ----------  ------- ---------  ------------  -----------

Balances, December 31, 2005  29,395,200 $72,942,600  2,947,100 $3,661,500  500,000 $(375,100) $(69,752,200) $ 6,476,800
                             ========== ===========  ========= ==========  ======= =========  ============  ===========


                               See accompanying notes to the consolidated financial statements
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED DECEMBER 31,(Unaudited)

                                                         2005          2004
                                                     ------------  ------------
<S>                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Loss from operations                              $ (2,106,000)  $(1,779,900)
   Adjustments to reconcile net loss to net
   cash used in operating activities:
      Depreciation and amortization                       219,500       168,100
      Stock issued for services                              -           59,900
      Income from assets held for sale                    (15,400)      (10,800)
   Changes in:
      Accounts receivable, net                            322,000      (334,400)
      Inventories, net                                   (364,700)       21,900
      Costs in excess of billings and estimated
         earnings on uncompleted contracts                   -          (55,500)
      Prepaid expenses and other current assets           (63,400)      (75,300)
      Other assets                                          5,500         5,300
      Accounts payable and accrued expenses               (19,500)      269,400
      Deferred revenue                                     34,600       123,100
      Billings and estimated earnings in excess of
         costs on uncompleted contracts                    (1,200)      (25,800)
                                                     ------------  ------------
      Net cash used in operating activities            (1,988,600)   (1,634,000)
                                                     ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Net cash from assets held for sale                      50,400        40,500
   Collection of notes receivable, net                     53,400        55,000
   Purchase of property, plant and equipment              (66,700)      (75,500)
   Patent renewal and other                                  -           (1,800)
                                                     ------------  ------------
   Net cash provided by investing activities               37,100        18,200
                                                     ------------  ------------
</TABLE>

         See accompanying notes to the consolidated financial statements

                                       7
<PAGE>
<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                FOR THE SIX MONTHS ENDED DECEMBER 31, (Continued)

                                                         2005          2004
                                                     ------------  ------------
<S>                                                  <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Advances on borrowings                            $    170,500  $       -
   Repayment on borrowings                                   -           (3,500)
   Net proceeds from sale of Equity Transactions        1,173,600     1,112,400
                                                     ------------  ------------
   Net cash provided by financing activities            1,344,100     1,108,900
                                                     ------------  ------------

NET (DECREASE) IN CASH                                   (607,400)     (506,900)

CASH AND CASH EQUIVALENTS, beginning of period            737,300     1,975,600
                                                     ------------  ------------

CASH AND CASH EQUIVALENTS, end of period             $    129,900  $  1,468,700
                                                     ============  ============


SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

   Net cash paid during the period for interest      $     47,400  $     16,700
                                                     ============  ============

   Non-Cash Activities:
      Value of stocks and warrants issued for
         services and prepayments                    $    135,100  $     59,900
                                                     ============  ============
      Valuation adjustment                           $    (80,700) $       -
                                                     ============  ============
      Value of warrants issued for credit line
         extension                                   $       -     $     23,300
                                                     ============  ============
      Series B preferred stock dividend, paid
         in kind                                     $     34,300  $     30,000
                                                     ============  ============
      Series A preferred stock dividend, paid in
         kind                                        $    248,800   $   221,800
                                                     ============  ============
</TABLE>

         See accompanying notes to the consolidated financial statements

                                       8
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE PERIOD ENDED DECEMBER 31, 2005

Note A - Basis of Presentation and Recent Accounting Pronouncements

         Alanco Technologies, Inc., an Arizona corporation ("Alanco" or
"Company"), operates in two business segments:  Computer Data Storage Segment
and RFID Technology Segment.

         The unaudited condensed consolidated balance sheet as of December 31,
2005, the related unaudited condensed consolidated statements of operations,
changes in shareholders' equity and cash flows for the six months ended December
31, 2005 presented herein have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and in accordance with the instructions to Form 10-QSB.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In our opinion, the accompanying
condensed consolidated financial statements include all adjustments necessary
for a fair presentation of such condensed consolidated financial statements.
Such necessary adjustments consist of normal recurring items and the elimination
of all significant intercompany balances and transactions.

         These interim condensed consolidated financial statements should be
read in conjunction with the Company's June 30, 2005, Annual Report on Form
10-KSB. Interim results are not necessarily indicative of results for a full
year. Certain reclassifications have been made to conform prior period
financials to the presentation in the current reporting period. The
reclassifications had no effect on net loss.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.

         All stock options issued to employees have an exercise price not less
than the fair market value of the Company's Common Stock on the date of grant.
In accordance with accounting for such options utilizing the intrinsic value
method under APB 25, there is no related compensation expense recorded in the
Company's financial statements for the six months ended December 31, 2005 and
2004. Had compensation cost for stock-based compensation been determined based
on the fair value of the options at the grant dates consistent with the method
of SFAS 123, the Company's net loss and loss per share would have been increased
to the pro forma amounts presented below.

                                       9
<PAGE>
                            ALANCO TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                                                     6 months ended December 31,
                                                         2005          2004
                                                     ------------  ------------
<S>                                                  <C>           <C>
Net loss, as reported                                $ (2,389,100) $ (2,031,600)

Deduct: Total stock-based Employee compensation
   expense determined under fair value based
   methods for all awards, net of related tax
   effects                                           $   (521,000) $    (43,500)
                                                     ------------  ------------

Pro forma net loss                                   $ (2,910,100) $ (2,075,100)
                                                     ============  ============

Net loss per common share, basic and diluted
     As reported                                     $      (0.09)  $     (0.08)
                                                     ============  ============
     Pro forma                                       $      (0.10)  $     (0.08)
                                                     ============  ============

Weighted Average Shares Outstanding,
     Basic and Diluted                                 27,486,000    24,887,000
                                                     ============  ============
</TABLE>

During the six months ended December 31, 2005, the Company granted employee
stock options to purchase 2,205,000 shares of the Company's Class A Common Stock
at an average purchase price of $0.74, market price on date of grant. The fair
value of option grants is estimated as of the date of grant, in accordance with
SFAS 123, utilizing the Black-Scholes option-pricing model, with the assumptions
substantively utilized in the year-end financial statements.

Long-lived assets and intangible assets - The Company reviews carrying values at
least annually or whenever events or circumstances indicate the carrying values
may not be recoverable through projected discounted cash flows.

Recent Accounting Pronouncements - In November 2004, the FASB issued Statement
No. 151 ("SFAS 151"), "Inventory Cost - An Amendment of ARB No. 43, Chapter 4."
SFAS 151 clarifies accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. It requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of abnormal. Currently, we do not have any inventory items that fall
into the classifications discussed; accordingly, adoption of SFAS 151 does not
have a significant impact on our financial statements.

In December 2004, the FASB issued Statement No. 152 ("SFAS 152"), "Accounting
for Real Estate Time-Sharing Transactions -- An Amendment of Statements 66 and
67." SFAS 152 amends SFAS 66 and 67 to reference the financial accounting and
reporting guidance for real estate time-sharing transactions and to state that
the guidance for incidental operations and costs incurred to sell real estate
projects does not apply to real estate time-sharing transactions. SFAS 152 is
effective for financial statements for fiscal years beginning after June 15,
2005. Currently, the Company does not have any real estate transactions.
Accordingly, adoption of SFAS 152 does not have a significant impact on our
financial statements.

In December 2004, the FASB issued Statement No. 153 ("SFAS 153"), "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29." SFAS 153 amends APB
Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. Adoption of SFAS 153 does not
have a significant impact on our financial statements.

In December 2004, the FASB issued Statement No. 123R ("SFAS 123R"), "Share-Based
Payment." This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
It requires that the fair-value-based method be used to account for these
transactions for all public entities. This Statement is effective for small
business issuers for the first fiscal year beginning after December 15, 2005 and
will effect any stock-based compensation for options issued after that date, or
not vested as of that date.

                                       10
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

In May 2005, the FASB issued Statement No. 154 ("SFAS 154"), "Accounting Changes
and Error Corrections." SFAS 154 replaces APB Opinion No. 20, ("APB 20") and
SFAS No. 3 to require retrospective application of changes to all prior period
financial statements so that those financial statements are presented as if the
current accounting principle had always been applied. APB 20 previously required
most voluntary changes in accounting principles to be recognized by including in
net income of the period of change the cumulative effect of changing to the new
accounting principle. In addition, SFAS 154 carries forward without change the
guidance contained in APB 20 for reporting a correction of an error in
previously issued financial statements and a change in accounting estimate. SFAS
154 is effective for changes and corrections made after January 1, 2006, with
early adoption permitted. The Company is currently not contemplating changes
that would be impacted by SFAS 154.

Note B - Inventories

         Inventories are recorded at the lower of cost or market. The
composition of inventories as of December 31, 2005 and June 30, 2005 are
summarized as follows:
<TABLE>
<S>                                                 <C>            <C>
                                                     December 31,     June 30,
                                                         2005          2005
                                                     ------------  ------------
                                                      (unaudited)
Raw materials and purchased parts                    $  2,394,600  $  2,011,900
Work-in-progress                                          122,000       106,000
Finished goods                                             97,700        99,300
                                                     ------------  ------------
                                                        2,614,300     2,217,200
Less reserves for obsolescence                           (347,000)     (314,600)
                                                     ------------  ------------
                                                     $  2,267,300  $  1,902,600
                                                     ============  ============
</TABLE>

Note C - Contracts In Process

         Costs incurred, estimated earnings and billings in the RFID Technology
segment, related to contracts for the installation of TSI PRISM system in
process at December 31, 2005 and June 30, 2005 consist of the following:

<TABLE>
<S>                                                 <C>            <C>
                                                     December 31,     June 30,
                                                         2005          2005
                                                     ------------  ------------
                                                       (unaudited)
Costs incurred on uncompleted contracts              $     64,300  $     34,100
Estimated gross profit earned to date                       9,700         1,700
                                                     ------------  ------------
Revenue earned to date                                     74,000        35,800
Less Billing to date                                      (77,000)      (40,000)
                                                     ------------  ------------
Billing in excess of costs and
     estimated earnings                              $     (3,000) $     (4,200)
                                                     ============  ============
</TABLE>

                                       11
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Note D - Deferred Revenue

         Deferred Revenues at December 31 and June 30, 2005 consist of the
following:

 <TABLE>
<S>                                                  <C>           <C>
                                                     December 31,     June 30,
                                                         2005           2005
                                                     ------------  ------------
                                                      (unaudited)
Extended warranty revenue                            $     94,700  $     60,100
Less - current portion                                    (94,700)      (60,100)
                                                     ------------  ------------
Deferred revenue - long term                         $       -     $       -
                                                     ============  ============
</TABLE>

Note E - Loss Per Share

         Basic loss per share of common stock was computed by dividing net loss
by the weighted average number of shares of common stock outstanding.

         Diluted  earnings per share are computed  based on the weighted average
number of shares of common stock and dilutive securities  outstanding during the
period. Dilutive securities are options and warrants that are freely exercisable
into common stock at less than the prevailing market price.  Certain potentially
dilutive  securities  are not included in the weighted  average number of shares
when  inclusion  would  increase the earnings per share or decrease the loss per
share.  As of December 30, 2005,  when the closing market price of the Company's
Class A Common  Stock  on the  NASDAQ  Capital  Market  was  $0.56,  there  were
1,150,000  potentially dilutive  in-the-money warrants outstanding and 2,362,500
potentially  dilutive  in-the-money  options  outstanding.  In  addition,  as of
December 31, 2005, there are 3,555,000 out-of-the-money warrants outstanding and
7,137,500 out-of-the-money options outstanding. There were also 2,947,100 shares
of Series A Convertible Preferred Stock outstanding  (convertible into 8,841,400
shares of Class A Common  Stock)  and  71,400  shares  of  Series B  Convertible
Preferred Stock  outstanding  (convertible into 928,500 shares of Class A Common
Stock).

Note F - Equity

         During the six months ended December 31, 2005, the Company issued a
total of 2,215,000 shares of the Company's Class A Common Stock. Included were
1,990,000 shares issued upon exercise of outstanding warrants and options
generating $1,188,600 in proceeds to the Company. In addition, the Company
granted 225,000 shares, valued at fair market value on date of issue of
$135,100, in exchange for future services to be rendered to the Company.

         During March 2005, the Company entered into a technology license
agreement with a developer of RFID real-time location services technology
utilizing 2.4 GHz wireless networking standards. In conjunction with the
execution of the license agreement, the Company issued 250,000 shares of the
Company's Class A Common Stock, the value of which may be applied to future
royalty payments and inventory purchases. Another 150,000 shares were issued on
December 30, 2005 as consideration to amend the agreement. The definitive value
for the 400,000 shares issued will be determined at market value on the
effective date of the applicable stock registration statement; however, at
December 31, 2005, the value of the 400,000 issued shares was determined to be
$224,000, based upon the closing market price on December 30, 2005 of $.56 per
share. At June 30, 2005, the 250,000 shares previously issued had been valued at
$220,700. The value of those 250,000 shares at December 31, 2005 was $140,000,
resulting in a net valuation decrease of $80,700.

         On January 19, 2006, the Company filed an S-3 registration statement,
which included the 400,000 shares discussed above. That S-3 filing is currently
under review by the SEC and is anticipated to become effective after SEC
comments are received (within 30 days) and appropriate corrections, if
necessary, are made to the S-3 filing.

         In October 2005, the Company reduced the exercise price for warrants
(due to expire on December 31, 2005) from $1.00 per share to $.70 per share to
purchase 1,450,000 shares of the Company's Class A Common Stock, granted to a
group of equity investors in conjunction with a private placement in October
2002. The price was further reduced to $.50 on November 16, 2005 and for every
$.50 warrant exercised, a new 3 year warrant was issued at an exercise price of
$.50. (In all instances, the adjusted exercise price of the warrants outstanding
and the exercise price of the warrants granted represented a value equal to or


                                       12
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

greater than market on date modified or granted.) Warrants to purchase 600,000
(41.3%) of the 1,450,000 shares were held by officers and directors of the
Company, including warrants to purchase 100,000 shares held by Robert R.
Kauffman, CEO, Director and greater than five percent (5%) owner of the Company,
and warrants to purchase 400,000 shares controlled by Don Anderson, a Director
and greater than five percent (5%) owner of the Company. 1,150,000, or 79.3%, of
the 1,450,000 warrants modified were exercised by December 31, 2005 (included in
the total warrants and options exercised above), resulting in proceeds of
$575,000 to the Company.

         The Company declared and paid dividends-in-kind on the Company's
preferred shares through the issuance of 165,900 shares of Series A Preferred
Stock valued at $248,800 and 3,400 shares of Series B Preferred Stock valued at
$34,300. The Preferred Stocks are more fully discussed in the Form-10KSB for the
year ended June 30, 2005.


Note G -Industry Segment Data

Information concerning operations by industry segment follows (unaudited):

<TABLE>
<CAPTION>

                                           Six Months ended 12/31    Three Months ended 12/31
                                              2005         2004          2005         2004
                                        --------------------------  ---------------------------
<S>                                     <C>           <C>           <C>           <C>
Revenue
     Data Storage                       $  2,990,600  $  3,187,500  $  1,526,000  $  1,821,800
     RFID Technology                         235,900       635,200        98,900       263,700
                                        ------------  ------------  ------------  ------------
  Total Revenue                            3,226,500     3,822,700     1,624,900     2,085,500
                                        ============  ============  ============  ============

Gross Profit
     Data Storage                            991,500     1,047,000       481,500       567,100
     RFID Technology                          64,500       257,500        29,600       116,000
                                        ------------  ------------  ------------  ------------
  Total Gross Profit                       1,056,000     1,304,500       511,100       683,100
                                        ------------  ------------  ------------  ------------

Gross Margin
     Data Storage                              33.2%         32.8%         31.6%         31.1%
                                        ------------  ------------  ------------  ------------
     RFID Technology                           27.3%         40.5%         29.9%         44.0%
                                        ------------  ------------  ------------  ------------
     Overall Gross Margin                      32.7%         34.1%         31.5%         32.8%
                                        ------------  ------------  ------------  ------------

Selling, General and Administrative
  Expense
     Data Storage                          1,085,100       878,500       522,900       433,300
     RFID Technology                       1,369,300     1,393,900       696,000       703,900
                                        ------------  ------------  ------------  ------------
  Total Segment Operating Expense          2,454,400     2,272,400     1,218,900     1,137,200
                                        ------------  ------------  ------------  ------------

Operating Profit (Loss)
     Data Storage                            (93,600)      168,500       (41,400)      133,800
     RFID Technology                      (1,304,800)   (1,136,400)     (666,400)     (587,900)
     Corporate Expense, net                 (682,200)     (795,200)     (320,500)     (411,700)
                                        ------------  ------------  ------------  ------------
  Operating Loss                        $ (2,080,600)  $(1,763,100) $ (1,028,300)  $   (865,800)
                                        ============  ============  ============  ============

Depreciation and Amortization
     Data Storage                             12,300         8,000         6,200         4,400
     RFID Technology                         205,400       158,700       120,000        80,300
     Corporate                                 1,800         1,400           900           700
                                        ------------  ------------  ------------  ------------
  Total Depreciation and Amortization   $    219,500 $     168,100  $    127,100  $     85,400
                                        ============  ============  ============  ============
</TABLE>


                                       13
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Note H - Related Party Transactions

         The Company has a $1.5 million line of credit agreement ("Agreement"),
more fully discussed in the Company's Form 10-KSB for the year ended June 30,
2005, with a private trust controlled by Mr. Donald Anderson, a greater than
five percent stockholder and a member of the Company's Board of Directors. See
Note - F Equity for discussion of modification to warrants granted to a group of
equity investors, including entities controlled by Mr. Anderson, and including
Mr. Robert Kauffman, the Company's CEO and member of the Company's Board of
Directors who is also a greater than 5% owner of the Company.

Note I - Line of Credit

         At December 31, 2005, the Company had an outstanding balance under the
line of credit agreement of $1,000,000. The balance is under a $1.5 million line
of credit agreement with a private trust ("Lender"), entered into in June 2002
and last modified on June 29, 2005. Under the Agreement, the Company must
maintain a minimum balance due under the line of at least $1,000,000 through the
July 1, 2007 expiration date. As such, the $1,000,000 due under the line of
credit agreement is recorded as Notes payable, long term. At December 31, 2005,
the Company had $500,000 available under the line of credit agreement.

Note J - Litigation

         The Company continues to be a defendant in litigation that relates to
the acquisition, in May of 2002, of substantially all the assets of Technology
Systems International, Inc., a Nevada corporation. No significant new activity
has occurred subsequent to our report of litigation in our Form 10-KSB filed for
the year ended June 30, 2005. Due to internal governance issues affecting the
plaintiff, the litigation has been indefinitely stayed. The Company's
management, in consultation with legal counsel, believes the plaintiff's claims
are without merit and the Company will aggressively defend against the action.

         Litigation previously reported as arising from an expired property
lease between the Company's subsidiary, Arraid, Inc., and Arraid Property
L.L.C., a Limited Liability Company, is continuing. The Company's management, in
consultation with legal counsel, believes the plaintiff's claims are without
merit and the Company is aggressively defending against this action.

         The Company intends to pursue legal expense reimbursement from both the
Company's insurance carrier (where appropriate) and the Plaintiffs in the
litigation matters.

Note K - Subsequent Events

         The Company completed on January 17, 2006 the sale, in a private
offering to an institutional investor, of 1,500,000 units consisting of one
share of its Class A Common Stock together with a 3-year warrant to purchase
one-half share of the Company's Common Stock at a price of $.85 per share
("Unit") for a unit sale price of $.60. The Company received $837,000, net of
commission, from the offering. The Company granted additional warrants to
purchase 52,500 shares of its Common Stock on terms identical to those granted
in the private offering as additional commission related to the offering.

         On February 1, 2006 the Company received notification from Nasdaq
granting the Company an extension until July 31, 2006, to comply with Nasdaq's
$1.00 per share minimum bid price continued listing requirement.

Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, the


                                       14
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

following factors: general economic and market conditions; reduced demand for
information technology equipment; competitive pricing and difficulty managing
product costs; development of new technologies which make the Company's products
obsolete; rapid industry changes; failure by the Company's suppliers to meet
quality or delivery requirements; the inability to attract, hire and retain key
personnel; failure of an acquired business to further the Company's strategies;
the difficulty of integrating an acquired business; undetected problems in the
Company's products; the failure of the Company's intellectual property to be
adequately protected; unforeseen litigation; the ability to maintain sufficient
liquidity in order to support operations; the ability to maintain satisfactory
relationships with lenders and to remain in compliance with financial loan
covenants and other requirements under current banking agreements; and the
ability to maintain satisfactory relationships with suppliers and customers.

General

         Information on industry segments is incorporated by reference from Note
G - Segment Reporting to the Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

         Management's discussion and analysis of financial condition and results
of operations are based upon the condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of our financial
statements requires the use of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an ongoing basis, estimates are revalued, including
those related to areas that require a significant level of judgment or are
otherwise subject to an inherent degree of uncertainty. These areas include
allowances for doubtful accounts, inventory valuations, carrying value of
goodwill and intangible assets, estimated profit on uncompleted contracts in
process, income and expense recognition, income taxes, ongoing litigation, and
commitments and contingencies. Our estimates are based upon historical
experience, observance of trends in particular areas, information and/or
valuations available from outside sources and on various other assumptions that
we believe to be reasonable under the circumstances and which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual amounts may differ from these
estimates under different assumptions and conditions.

         Accounting policies are considered critical when they are significant
and involve difficult, subjective or complex judgments or estimates. We
considered the following to be critical accounting policies:

         Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.

         Revenue recognition - The Company recognizes revenue from the Data
Storage Segment, net of anticipated returns, at the time products are shipped to
customers, or at the time services are provided. Revenue from material long-term
contracts (in excess of $250,000 and over a 90-day completion period) in both
the Data Storage Segment and the RFID Technology Segment are recognized on the
percentage-of-completion method for individual contracts, commencing when
significant costs are incurred and adequate estimates are verified for
substantial portions of the contract to where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized in the
ratio that costs incurred bear to total estimated costs. Changes in job
performance, estimated profitability and final contract settlements would result
in revisions to cost and income, and are recognized in the period in which the
revisions were determined. Contract costs include all direct materials,
subcontracts, labor costs and those direct and indirect costs related to
contract performance. General and administrative costs are charged to expense as
incurred. At the time a loss on a contract becomes known, the entire amount of
the estimated ultimate loss is accrued.

         Long-lived assets and intangible assets - The Company reviews carrying
values at least annually or whenever events or circumstances indicate the
carrying values may not be recoverable through projected discounted cash flows.

                                       15
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Results of Operations

(A)      Three months ended 12/31/05 versus 12/31/04

Sales
         Consolidated sales for the quarter ended December 31, 2005 were
$1,624,900, a decrease of $460,600, or 22.0%, when compared to $2,085,500 for
the comparable quarter of the prior year. The decrease resulted from a sales
decrease in the RFID Technology segment of $164,800, or 62.4%, from $263,700 for
the quarter ended December 31, 2004 to $98,900 for the current quarter. Sales of
the RFID Technology segment decreased due to the lack of revenue during the
quarter related to the sale of TSI PRISM contracts. The Data Storage segment
decreased sales by 16.2% to $1,526,000 from $1,821,800 reported for the quarter
ended December 31, 2004. The 16.2% decrease in Data Storage segment sales
resulted primarily from delayed shipments related to international sales.

Gross Profit and Operating Expenses
         Gross profit reported during the quarter amounted to $511,100, a
decrease of $172,000, or 25.1%, when compared to $683,100 reported for the same
quarter of the prior year. The decrease in gross profit resulted from reduced
sales of both the RFID Technology segment and the Data Storage segment.
Consolidated gross margins decreased from 32.8% for the quarter ended December
31, 2004 to 31.5% for the current quarter. The decrease in gross margin resulted
from the minimal sales of the RFID Technology segment which reduced the gross
margin percentage. The gross margin for the Data Storage segment increased to
31.6% from 31.1% for the same quarter of the prior year.

         Selling, general and administrative expenses for the current quarter
increased to $1,539,400, a $9,500 decrease when compared to $1,548,900 incurred
in the comparable quarter of fiscal year 2004. Sales, general and administrative
expenses related to Data Storage increased to $522,900, an increase of $89,600,
or 20.7%, when compared to sales, general and administrative expense for the
same quarter of the prior year. The increase in selling, general and
administrative expenses for the Data Storage segment resulted from an increase
in unallocated engineering project expenses of approximately $33,000 and
increased administrative and sales support expense incurred in anticipation of
increased revenues. Sales, general and administrative expenses related to the
RFID Technology segment decreased from $703,900 for the quarter ended December
31, 2004 to $696,000 for the current quarter. Corporate expenses reported as
Sales, general and administrative expense decreased to $320,500, a decrease of
$91,200, or 22.2 %, when compared to the $411,700 reported for the same quarter
of the prior year. The decrease resulted from a decrease in legal expense.

Operating Loss
         The Operating Loss for the quarter was ($1,028,300) compared to a loss
of ($865,800) for the same quarter of the prior year, an increase of $162,500,
or 18.7%. The increased Operating Loss resulted from the RFID Technology segment
increasing its Operating Loss by $78,500 to ($666,400), an increase of 13.3%,
when compared to the Operating Loss reported in the same quarter of the prior
year of ($587,900); and the Data Storage segment reporting a Operating Loss of
($41,400), compared to an Operating profit of $133,800 reported in the
comparable quarter of the prior year. The Data Storage segment's reduction in
operating profit was due primarily to the increase in unallocated engineering
project expense and cost increases incurred in anticipation of increased future
revenues.

Interest Expense, Other Income and Dividends Expense
         Net interest expense for the quarter amounted to $21,700 compared to
interest expense of $11,200 for the same quarter in the prior year. The interest
expense increase resulted from increases in the prime rate, and an increase in
the minimum borrowing limit of our credit line. Other Income increased to $8,200
from $5,800 reported for the comparable quarter of the prior year. The Company
paid quarterly in-kind Series B Preferred Stock dividends with values of $17,300
and $15,000 in the quarters ended December 31, 2005 and 2004, respectively.

Net Loss Attributable to Common Stockholders
         Net Loss Attributable to Common Stockholders for the quarter ended
December 31, 2005 amounted to ($1,059,100), or ($.04) per share, compared to a
loss of ($886,200), or ($.03) per share, in the comparable quarter of the prior
year. Although the Company has reported operating losses in both the RFID


                                       16
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Technology segment and its Data Storage segment, it anticipates improved future
operating results in both segments. However, actual results in both the Data
Storage segment and the RFID Technology segments may be affected by unfavorable
economic conditions and reduced capital spending budgets. If the economic
conditions in the United States worsen or if a wider or global economic slowdown
occurs, Alanco may experience a material adverse impact on its operating results
and business conditions.

(B)      Six months ended 12/31/2005 versus 12/31/2004

Sales
         Consolidated Sales for the six months ended December 31, 2005 were
$3,226,500, a decrease of $596,200, or 15.6%, compared to $3,822,700 reported
for the comparable period of the previous year. The sales decrease is attributed
to decreases in both of the Company's two business segments. The Company's Data
Storage segment reported sales of $2,990,600, a decrease of $196,900, or 6.1%,
for the six months ended December 31, 2005, compared to $3,187,500 reported for
the six months ended December 31, 2004. The RFID Technology segment reported
sales of $235,900, a 62.9% decrease when compared to $635,200 reported for the
comparable period in the prior fiscal year.

Gross Profit and Operating Expenses
         Gross profit generated during the current quarter amounted to
$1,056,000, a decrease of $248,500, or 19.0% when compared to the same period of
the prior year. Gross margins decreased from 34.1% for the six months ended
December 31, 2004 to 32.7% for the current period. The decrease in gross margin
resulted primarily from a reduced gross margin in the RFID Technology segment
due to low sales volumes. The gross margin in the Data Storage segment increased
from 32.8% to 33.2% when comparing the current quarter to the comparable quarter
of the previous year.

         Selling, general and administrative expenses for the six months ended
December 31, 2005 increased to $3,136,600, a 2.2% or $69,000 increase, when
compared to $3,067,600 incurred in the comparable period of fiscal year 2004.
The increase was due to an increase in sales and administrative expenses and
increases in unallocated engineering project expenses in the Company's Data
Storage segment, offset by a decrease in corporate legal expense.

Operating Loss
         The Operating Loss for the six-month period was ($2,080,600) compared
to a loss of ($1,763,100) for the same six-month period of the prior fiscal
year, an increase of $317,500 or 18.0%. The increased Operating Loss resulted
from the RFID Technology segment increasing its loss by $168,400, or 14.8%, to
($1,304,800), compared to a loss of ($1,136,400) in the prior year, and the Data
Storage Segment reporting a loss of ($93,600) compared to a $168,500 operating
profit last year.

Interest and Dividends Expense
         Net interest expense for the six months ended December 31, 2005
amounted to $42,200 compared to net interest expense of $27,600 for the same
six-month period in the prior year. The increase resulted from increases in the
prime rate, and an increase in the minimum borrowing limit of our credit line.
The Company paid in-kind Series A and Series B Preferred Stock dividends with
values of $283,100 and $251,700 in the six months ended December 31, 2005 and
2004, respectively.

Net Loss Attributable to Common Stockholders
         Net Loss Attributable to Common Stockholders for the six months ended
December 31, 2005 amounted to ($2,389,100), or ($.09) per share, compared to a
loss of ($2,031,600), or ($.08) per share, in the comparable period of the prior
year. Although the Company has reported increased operating losses in both the
RFID Technology segment and its Data Storage segment, it anticipates improved
future operating results in both segments as markets improve. However, actual
results in both the Data Storage segment and the RFID Technology segments, may
be affected by unfavorable economic conditions and reduced capital spending
budgets. If the economic conditions in the United States worsen or if a wider or
global economic slowdown occurs, Alanco may experience a material adverse impact
on its operating results and business conditions.

                                       17
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Liquidity and Capital Resources

         The Company's current assets at December 31, 2005 exceeded current
liabilities by $2,334,300, resulting in a current ratio of 2.7 to 1. At June 30,
2005 the Company's current assets exceeded current liabilities by $2,845,600,
reflecting a current ratio of 3.12 to 1. The decrease in the current ratio at
December 31, 2005 when compared to June 30, 2005 resulted primarily from funding
operating losses during the period. Accounts receivable of $769,400 at December
31, 2005, reflects a decrease of $322,000, or 29.5%, when compared to the
$1,091,400 reported as consolidated accounts receivable at June 30, 2005. The
accounts receivable balance at December 31, 2005 represented forty-three days'
sales in receivables compared to forty days' sales at June 30, 2005. The Data
Storage segment reported 26.3 days' sales while days' sales in the RFID
Technology segment amounted to 247 days due to a contract holdback and a
disputed balance. Both issues are anticipated to be rectified during the current
quarter.

         Consolidated inventories at December 31, 2005 amounted to $2,267,300,
an increase of $364,700, or 19.2%, when compared to $1,902,600 at June 30, 2005.
December 31, 2005 reflects an inventory turnover of 1.9 compared to an inventory
turnover of 2.5 reported at June 30, 2005. Although the December 31, 2005
inventory balance of $2,267,300 reflects a significant increase from the
inventory balance at June 30, 2005 of $1,902,600, it reflects a slight increase
from the $2,260,400 reported as of December 31, 2004. The current inventory
levels reflect management's continued anticipated revenue increases for both the
Data Storage segment and the RFID Technology segment.

         At December 31, 2005, the Company had an outstanding balance of
$1,000,000 under a $1.5 million formula-based revolving bank line of credit
agreement with interest calculated at prime plus 2%. The line of credit
agreement formula is based upon current asset values and is used to finance
working capital. At December 31, 2005, the Company had $500,000 available under
the line of credit. See Line of Credit Footnote I for additional discussion of
the existing line of credit agreement.

         Cash used in operations for the six-month period ended December 31,
2005 was $1,988,600, an increase of $354,600 when compared to cash used in
operations of $1,634,000 for the comparable period ended December 31, 2004. The
increase resulted primarily from increases in operating losses and inventory
levels during the current period.

         During the six months ended December 31, 2005, the Company reported
cash flows from investing activities of $37,100, compared to $18,200 reported
for the six months ended December 31, 2004. The increase is primarily the result
of reduced purchases of property, plant and equipment and a reduction in assets
held for sale.

         Cash provided by financing activities for the six months ended December
31, 2005 consisted of $1,173,600 in net proceeds received from the exercise of
options and warrants, and $170,500 of additional borrowing against the credit
line. Cash provided by financing activities during the same period in the prior
fiscal year included the net proceeds from the sale of common and preferred
stock of $1,112,400, offset by net repayment on borrowings during the period of
$3,500.

         Cash and cash equivalents at December 31, 2005 amounted to $129,000. In
addition, the Company had $500,000 available under its line of credit agreement
(see Note 1 - Line of Credit) and subsequent to December 31, 2005, the Company
completed the sale of 1,500,000 units consisting of one share of its Class A
Common Stock together with a 3-year warrant to purchase one-half share of the
Company's Common Stock at a price of $.85 per share ("Unit") for a unit sale of
price of $.60. The Company received $837,000, net of commission, from the
offering (See Note K - Subsequent Events).

         The Company believes that additional cash resources will be required
for working capital to achieve planned operating results for fiscal year 2006
and, if working capital requirements exceed current availability, the Company
anticipates raising capital through additional borrowing, the exercise of stock
options and warrants and/or the sale of stock in a private placement. The
additional capital would supplement the projected cash flows from operations and
the line of credit agreement in place at December 31, 2005. If additional
working capital is required and the Company is unable to raise the required
additional capital, it may materially affect the ability of the Company to
achieve its financial plan. The Company has raised a significant amount of
capital in the past and believes it has the ability, if needed, to raise the
additional capital to fund the planned operating results for fiscal year 2006.


                                       18
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

See Footnote F - Equity for additional information related to working capital
raised by the Company during the six months ended December 31, 2005, necessary
to achieve planned operating results for the current fiscal year results.

Item 3 -  CONTROLS AND PROCEDURES

         The Company maintains disclosure controls and procedures designed to
ensure that it is able to collect the information it is required to disclose in
the reports it files with the Securities and Exchange Commission (SEC), and to
process, summarize and disclose this information within the time periods
specified in the rules of the SEC. Based on various evaluations of the Company's
disclosure controls and procedures, some of which occurred during the 90 days
prior to the filing date of this report, the Chief Executive and Chief Financial
Officers believe that these controls and procedures are effective to ensure that
the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within the required
periods.

         The Company also maintains a system of internal controls designed to
provide reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets. Access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

         Since the date of the most recent evaluation of the Company's internal
controls by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

PART II.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

         The Company continues to be a defendant in litigation that relates to
the acquisition, in May of 2002, of substantially all the assets of Technology
Systems International, Inc., a Nevada corporation. No significant new activity
has occurred subsequent to our report of litigation in our Form 10-KSB filed for
the year ended June 30, 2005. Due to internal governance issues affecting the
plaintiff, the litigation has been indefinitely stayed. The Company's
management, in consultation with legal counsel, believes the plaintiff's claims
are without merit and the Company will aggressively defend against the action.
Litigation previously reported as arising from an expired property lease between
the Company's subsidiary, Arraid, Inc., and Arraid Property L.L.C., a Limited
Liability Company, is continuing. The Company's management, in consultation with
legal counsel, believes the plaintiff's claims are without merit and the Company
is aggressively defending against this action. The Company intends to pursue
legal expense reimbursement from both the Company's insurance carrier (where
appropriate) and the Plaintiffs in the litigation matters.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         During the six months ended December 31, 2005, the Company issued
165,900 shares of Series A Preferred Stock and 3,400 Shares of Series B
Preferred Stock as dividend in-kind payments, 1,990,000 shares of Class A Common
Stock for the exercise of existing warrants and options and 225,000 shares of
Common Stock for services rendered.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Shareholders held on January 20, 2006, the following
proposals were voted upon and approved by the stockholders.

                                       19
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

Proposal #1       Election of Directors

<TABLE>
   <S>                        <C>            <C>        <C>
                                 For         Withhold   Total Voting
                                 ---         --------   ------------
   Harold S. Carpenter        30,205,909     288,583     30,494,492
   Robert R. Kauffman         30,200,040     294,452     30,494,492
   James T. Hecker            30,239,851     254,641     30,494,492
   Thomas  C. LaVoy           30,243,751     250,741     30,494,492
   John A. Carlson            30,200,990     293,502     30,494,492
   Steven P. Oman             30,210,890     290,602     30,501,492
   Donald E. Anderson         30,905,009     289,483     31,194,492
</TABLE>

<PAGE>



Proposal #2       Approval of the Alanco 2005 Stock Option Plan.

                                                         Shares
                                                         ------
                  For                                  16,114,596
                  Against                                 892,054
                  Abstain                                 122,396
                  Broker not voted                     13,466,446

Proposal #3       Approval of the Alanco 2005 Directors and Officers Stock
                  Option Plan.

                                                         Shares
                                                         ------
                  For                                  16,289,307
                  Against                                 809,089
                  Abstain                                  30,650
                  Broker not voted                     10,752,276

Proposal #4 Authorize the Board of Directors, only if necessary, to reverse
split the Company's outstanding Class A Common Stock up to a 10 to 1 reverse
split.
                                                         Shares
                                                         ------
                  For                                  29,821,107
                  Against                                 750,143
                  Abstain                                  24,242

Item 6.  EXHIBITS

         31.1 Certification of Chief Executive Officer
         31.2 Certification of Chief Financial Officer
         32.1 Certification of Chief Executive Officer and Chief Financial
              Officer

SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.

                            ALANCO TECHNOLOGIES, INC.
                                  (Registrant)
                                                  /s/ John A. Carlson
                                                  -------------------
                                                  John A. Carlson
                                                  Executive Vice President and
                                                  Chief Financial Officer

                                       20
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                            ALANCO TECHNOLOGIES, INC.

EXHIBIT 31.1

                                Certification of
                      Chairman and Chief Executive Officer
                          of Alanco Technologies, Inc.

I, Robert R. Kauffman, certify that:

     1. I have reviewed this quarterly report on Form 10-QSB of Alanco
Technologies, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

     5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.

Date:    February 13, 2006

/s/ Robert R. Kauffman
---------------------
Robert R. Kauffman
Chairman and Chief Executive Officer


                                       21
<PAGE>
                            ALANCO TECHNOLOGIES, INC.

EXHIBIT 31.2

                                Certification of
                   Vice President and Chief Financial Officer
                          of Alanco Technologies, Inc.

I, John A. Carlson, certify that:

     1. I have reviewed this quarterly report on Form 10-QSB of Alanco
Technologies, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

     5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.

Date: February 13, 2006

/s/ John A. Carlson
---------------------
John A. Carlson
Executive Vice President and Chief Financial Officer



                                       22
<PAGE>
                            ALANCO TECHNOLOGIES, INC.




EXHIBIT 32.1

                                Certification of
               Chief Executive Officer and Chief Financial Officer
                          of Alanco Technologies, Inc.

         This certification is provided pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and accompanies this quarterly report of Form 10-QSB
(the "Report") for the period ended December 31, 2005 of Alanco Technologies,
Inc. (the "Issuer").

         Each of the undersigned, who are the Chief Executive Officer and Chief
Financial Officer, respectively, of Alanco Technologies, Inc., hereby certify
that, to the best of each such officer's knowledge:

         (i) the Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and

         (ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Issuer.

Dated:   February 13, 2006
                                      /s/ Robert R. Kauffman
                                      ----------------------
                                      Robert R. Kauffman
                                      Chief Executive Officer

                                      /s/ John A. Carlson
                                      ----------------------
                                      John A. Carlson
                                      Chief Financial Officer

                                       23
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